Solutions
Manual
r
,No Question Answer in Chapter 1
CHAPTER 2
SUPPLY AND DEMAND
SOLUTIONS TO END-OF-CHAPTER QUESTIONS
Demand
1.1 When the price of coffee changes, the change in the quantity demanded reflects a
movement along the demand curve. When other variables that affect demand
change, the entire demand curve shifts. For example, when income changes, this
causes coffee demand to shift.
Q
1.2 = 0.1.
Y
An increase in Y shifts the demand curve to the right, from D1 to D2.
1.3 The relationship between the quantity of coffee (𝑄) and the price of sugar (𝑝𝑠) is
defined by the coefficient on the 𝑝𝑠 term in the equation. Since this coefficient is
negative (it’s value is −0.3), an increase in the price of sugar (𝑝𝑠) will decrease the
quantity of coffee. This is the definition of a complementary good. More
117
,118 Perloff/Brander, Managerial Economics and Strategy, Third Edition
specifically, if the price of sugar goes up by $1.00 per pound, then the demand for
coffee will fall by 300,000 tons.
1.4 The market demand curve is the sum of the quantity demanded by individual
consumers at a given price. Graphically, the market demand curve is the horizontal
sum of individual demand curves.
1.5 a. The inverse demand curve for other town residents is p = 200 − 0.5Qr.
b. At a price of $300, college students demand 100 units of firewood, and other
residents demand no firewood. Other residents will demand zero units of firewood
if the price is greater than or equal to $200.
c. The market demand curve is the horizontal sum of individual demand curves, as
illustrated below.
, Solutions Manual—Chapter 2/Supply and Demand 119
s
Manual
r
,No Question Answer in Chapter 1
CHAPTER 2
SUPPLY AND DEMAND
SOLUTIONS TO END-OF-CHAPTER QUESTIONS
Demand
1.1 When the price of coffee changes, the change in the quantity demanded reflects a
movement along the demand curve. When other variables that affect demand
change, the entire demand curve shifts. For example, when income changes, this
causes coffee demand to shift.
Q
1.2 = 0.1.
Y
An increase in Y shifts the demand curve to the right, from D1 to D2.
1.3 The relationship between the quantity of coffee (𝑄) and the price of sugar (𝑝𝑠) is
defined by the coefficient on the 𝑝𝑠 term in the equation. Since this coefficient is
negative (it’s value is −0.3), an increase in the price of sugar (𝑝𝑠) will decrease the
quantity of coffee. This is the definition of a complementary good. More
117
,118 Perloff/Brander, Managerial Economics and Strategy, Third Edition
specifically, if the price of sugar goes up by $1.00 per pound, then the demand for
coffee will fall by 300,000 tons.
1.4 The market demand curve is the sum of the quantity demanded by individual
consumers at a given price. Graphically, the market demand curve is the horizontal
sum of individual demand curves.
1.5 a. The inverse demand curve for other town residents is p = 200 − 0.5Qr.
b. At a price of $300, college students demand 100 units of firewood, and other
residents demand no firewood. Other residents will demand zero units of firewood
if the price is greater than or equal to $200.
c. The market demand curve is the horizontal sum of individual demand curves, as
illustrated below.
, Solutions Manual—Chapter 2/Supply and Demand 119
s
